India, Dec. 31 -- India's stock market ended the year with their worst annual underperformance versus Asian peers in nearly three decades, weighed down by foreign outflows and a weakening rupee.

A rebound in the nation's shares that started in September has faded as global fund managers cut exposure. Foreign funds pulled out $1.7 billion in December, taking annual outflows to a record $17.9 billion. The selling was compounded by a slide in the rupee that has eroded returns for overseas investors.

The lack of progress on a India-US trade deal-amid highest US tariffs in Asia-has contributed to the rupee testing a series of record lows in recent months. The year has also seen Indian stocks lose favour with overseas investors as lofty valua...